Q2 Holdings Helping Financial Institutions Move to the Cloud

According to IT Spending in Banking: A North American Perspective, a report published by Celent, US financial institutions were expected to spend nearly $48.9 billion on IT initiatives in 2013. The study found that of this spend, $11.4 billion would be incurred on new initiatives. Banks are increasing their presence online and the new initiative spend is going toward improving their capabilities for online, mobile, tablet, and other self-service capabilities.

Q2 Holdings’s Offerings
Austin, Texas-based Q2 Holdings (NYSE: QTWO) is among the leading providers of cloud related services to local financial institutions. Q2 was founded in 2005 with a mission to innovate financial services offerings by partnering with financial institutions wanting to leverage the strength of upcoming technologies to deliver secure, cloud-based virtual banking solutions.

Q2 offers regional and community financial institutions (RCFIs) a broad array of integrated virtual banking services that help these institutions connect better with their retail and commercial account holders.  RCFIs are essentially financial institutions that serve local communities. There are nearly 13,500 banks and credit unions in this category in the country. Since these organizations are much smaller than traditional banks, they rely on outside vendors like Q2 to cater to their digital requirements. Q2’s digital solutions let the bank’s end-customers connect with the banks any time and on any device, including online, mobile, and voice; while ensuring that there is a consistent user experience across these digital channels.

Their core product is a virtual banking solution that features a common platform for unified delivery of virtual banking services across online, mobile, voice, and tablet channels. The tool provides the banks with a comprehensive view of account holder access and activity across devices and channels. Additionally, the flexibility in the tool ensures that organizations can integrate third-party applications and data sources into the mobile apps while maintaining data security and regulatory requirements.

Q2 Holdings’s Financials
Q2 offers their platform on a software-as-a-service delivery model that enables banks to scale services based on the requirement. Subscriptions to these services are normally sold for a tenure of five years. Besides subscriptions, Q2 also earns revenues through a transaction fee charged on the basis of the number of bill-pay and other e-banking transactions performed by the account holders on their virtual banking solutions. Their customer list includes more than 300 RCFIs with over 2.9 million retail and commercial users processing more than $145 billion in financial transactions over their solutions.  The customer list includes names like Camden National Bank, Community Bank (Los Angeles, CA), Eli Lilly Federal Credit Union, and Rockland Trust Company to name a few.

Q2 has seen significant growth with revenues growing from $27.0 million in 2011 to $41.1 million in 2012. For the nine months ended September 2013, revenues grew 41% to $41.2 million. Investment in sales and R&D efforts have resulted in increased losses. Losses have grown from $3.0 million in 2011 to $8.8 million in 2012. For the nine months ended September 2013, losses grew 90% to $11.4 million.

Q2 recently went public on the NYSE under the ticker QTWO. They raised $93 million last month by selling 7.75 million shares at $12.00 each. Their stock is trading at $13.68 with a market capitalization of $437 million. It touched a high of $17.38 soon after listing.